Personal Injury

What if I Disagree with the Insurance Company's Valuation of my Damaged Property?

Understanding replacement cost coverage, actual cash value coverage, and challenging the insurer's valuation of your damaged or destroyed property.

There's been a fire at your house and much of your furniture and other personal property has been badly damaged or destroyed. Luckily, no one was hurt, so there's no need to worry about a personal injury claim. You assume your homeowner's insurance policy will cover the loss, but now you're being told that your homeowner's insurance policy only pays for the "actual cash value" of your property, which will fall far short of the amount needed to replace what was lost. What recourse do you have? Read on to learn more.

Will Insurance Cover All Your Losses?

Most people assume that when their property and possessions are damaged or destroyed in a fire or other incident, their homeowner's insurance policy will cover their losses, and they'll receive a sufficient sum to purchase replacement items. However, depending upon the type and amount of property damage coverage you have, this may or may not be the case.

While it is true that most homeowner's policies provide coverage for the contents of the house as well as for the structure itself, the issue of whether your property damage coverage will cover 100% of your loss depends on the type and amount of coverage you carry. There are two basic types of property damage coverage offered by insurance companies: replacement cost and actual cash value.

What is "Replacement Cost" Coverage?

With replacement cost coverage, the insurance company will pay you, upon adequate proof of loss, the amount required to replace an item of personal property without regard to its potential depreciation over time.

For example, if your five-year-old king size bed that cost $2,000 new is destroyed in a fire, and the same or similar bed now costs $2,200 new, your insurance company will pay you $2,200 (less any applicable deductible or coinsurance). This is obviously the type of property damage coverage that you want to have, particularly in the case of something like a bed that depreciates quickly after it has been used for any period of time.

The insurance company will want to know the brand and model of the bed in order to determine what a new bed of the same or similar make/model costs today, but they will not be able to pay less than this amount due to depreciation when the policy provides for replacement value coverage. As a result, it is unlikely that you will disagree with the insurance company's valuation, since they are paying you the value of a brand new bed identical to yours.

What is "Actual Cash Value" Coverage?

When your policy provides for coverage based on the actual cash value of your damaged or destroyed property, the insurance company will first determine the replacement cost of the property, and then deduct any depreciation, to arrive at the amount it would cost to replace your used property with similar used property.

Using the example of the bed discussed above, this calculation would involve taking the replacement cost of $2,200 and reducing that sum by depreciation (likely calculated according to schedules maintained by the insurance industry) in the amount of $1,200, for example, to arrive at an actual cash value of $1,000 for your bed. So, unlike replacement value coverage, actual cash value coverage does not provide you with the funds necessary to go out and buy a new bed of comparable quality.

Challenging a Valuation

As you can see from the examples above, you are much more likely to disagree with your insurance company's valuation of your property when you have actual cash value coverage, because of the "depreciation" component of the coverage calculation.

This is particularly so in cases where there is not an active resale market for the property in question. If you disagree with the valuation, your insurance policy may provide for an appraisal process in which independent appraisers are selected to resolve the dispute; in the absence of such a provision, you are free to negotiate with the insurance company or to pursue a claim in arbitration or litigation, depending on your policy's provisions.

Whenever you decide to challenge the insurance company's valuation, your chances of success will be much higher if you arm yourself with support for your claim in the form of original invoices/receipts, photographs of the property before the damage occurred (if available), and most importantly, documentation from reliable sources showing the current market value of the property.

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